We have focused a lot on dividends in recent years. With the low interest rate environment, dividends have provided a way for investors to generate the income they need without tying their money up in 30-year Treasury bonds.
Even with all our commentary, how much do you know about dividend-paying stocks?
Did you know 418 of the 500 stocks in the S&P 500 pay dividends? While that seems like it would be easy to invest in dividend stocks, only 309 of the 500 S&P stocks meet Henssler’s strict investment criteria. If you are looking for high quality securities, it takes more than just looking at the dividend yield.
Did you know the S&P has an average dividend yield of 1.95%? While that is more than most Treasury bonds, it is possible to design a portfolio that yields more. At Henssler, we have an income portfolio that includes some of the 309 S&P stocks that meet our criteria, and some stocks that meet our criteria that are not included in the S&P. We also look for dividend growth. Our income portfolio yields about 3.7% and has an average dividend growth rate of 7%.
Did you know in the last two months the S&P dividend-paying stocks have had better returns? Specifically, the Utilities sector, which has a dividend yield of 3.67% and is up about 10% since January 1, 2014.
Did you know the Financials sector comprises more than 20% of the funds that are focused on dividends?
Did you know the largest U.S. dividend-focused mutual fund holds more than $30.5 billion in assets? The BlackRock Dividend Equity Fund (MCDVX) yields 1.09% and is paid monthly. You could earn more owning a company like McDonald’s Corp. that yields 3.10% or Southern Company that yields 4.80%, but you would not be as diversified if these were your only holdings.
You certainly knew figuring the tax on dividends is complicated. Qualified dividends are taxed as long-term gains. If you are in the top tax bracket of 39.6%, you will be taxed 20% on your dividend income, plus you’ll have to pay an additional 3.8% Medicare surtax on your investment income. If you are in lower tax brackets, you’ll pay 15% tax on dividends. Unqualified dividends, which are often paid out by real estate investment trusts (REITs) and master limited partnerships (MLPs), dividends paid on employee stock options, dividends paid by tax-exempt companies, and dividends paid on savings or money market accounts, are taxed at ordinary income rates.
Did you know 90% of the S&P’s return since the late 1940s is a result of reinvesting dividends? Dividends play a major part in most investors’ returns.
At Henssler Financial, we believe you should Live Ready, and that includes understanding how a stock’s dividend yield affects your investment. If you have questions regarding your dividend-paying stocks, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
